Empirical Analysis of Factors Influencing RMB Exchange Rate Volatility in the Context of RMB Internationalization

Abstract

This paper selects and collates data on exchange rate volatility and its related influencing factors in China from 2002 to 2022 as a research sample, explores the causes of RMB exchange rate volatility in the context of RMB internationalisation, and proposes policy recommendations on how to maintain exchange rate stability in the process of RMB internationalisation. Using RMB exchange rate volatility as the explanatory variable, the following results were obtained by building a multiple linear regression model and introducing conditional variables to indicate the degree of RMB internationalisation: the amount of foreign exchange reserves, the Sino-US interest rate differential and the balance of payments differential have significant effects on RMB exchange rate volatility, while foreign direct investment, the relative inflation rate between China and the US and the GDP growth rate have insignificant effects on exchange rate volatility.